Wall Street Wiped the Floor With Liberal Democrats in the Fight Over the Spending Bill

The House passed a $1.1 trillion spending bill late Thursday night over the objections of a small but influential group of liberal Democrats who objected to a provision in the legislation that loosens an important regulation on big banks.

The Senate is expected to sign off sometime Friday, and President Barack Obama has said he will sign the final version, meaning most of the federal government will be funded through next September.

But it wasn't supposed to be this way. The fight that unfolded over the past 48 hours laid bare significant division inside the Democratic ranks and signaled the emergence of a new balance of power on Capitol Hill as Republicans prepare to take control of both chambers in the new year.

An unexpected battle: The process was expected to be smooth, with just a few Republican tea partyers hankering for a harsher response to President Obama's November immigration actions. Instead, we saw a true political drama — House Minority Leader Nancy Pelosi (D), with the vocal backing of Sen. Elizabeth Warren (D-Mass.), publicly broke from the White House to oppose the bill over the provisions they found objectionable. Democrats are now saying the White House betrayed liberals and undermined years of work to keep the big banks in check.

At issue was a provision in the mega-spending bill that would once again put taxpayers on the hook for one of the riskiest trading practices used by major firms like Citigroup, Goldman Sachs and J.P. Morgan Chase. Its addition, just days before the government was scheduled run out of money, had liberal Democrats fuming.

"You will hear a lot of folks say that the rule that will be repealed in the Omnibus is technical and complicated ... that it's no big deal," Elizabeth Warren said in a fiery speech on the Senate floor Wednesday. "Don't believe them. ... The provision that's about to be repealed requires banks to keep separate a key part of their risky Wall Street speculation so that there's no government insurance for that part of their business."

By Thursday morning, the battle lines had been drawn and, despite more passionate argument and heated internal debate, the fight to strip the provision from the bill was doomed.

And the phone call, as they say, was coming from inside the house — the White House.

The betrayal: Early in the day, President Obama and aides on Capitol Hill made it clear to Democratic members and the hordes of media keeping tabs on the backroom debates that the White House supported the full spending bill and would not consider a veto over one small piece of the law.

Despite orders from the party leaders to stand down, Pelosi and a large group of House Democrats continued to push back. The minority leader stood up and spoke on the House floor.

"This is a ransom. This is blackmail. You won't get a bill unless Wall Street gets its taxpayer coverage," she said, recounting the dangerous days of the 2008 crisis, when the big banks had taken the American economy to the brink of collapse. "And here we are, 2014, going down the same path."

But as the hours passed and the calls from the White House and, according to a Washington Post report, JP Morgan Chase CEO Jamie Dimon began to pour in, the Democrats wilted. In the end, 57 Democrats joined 162 Republicans to pass the spending bill, 219-206, and send it to the Senate. (They also voted to extend funding a few more days to give the upper chamber time to debate and vote.)

The Senate is expected to approve the legislation with significantly less excitement — though we should expect another screed from Warren, whose stature on Capitol Hill grows by the day — and send it to President Obama's desk for a final swipe of his pen.

Picking sides: With the threat of another shut down now past, the lessons of the mini-crisis are becoming more clear. Obama and Nancy Pelosi, the California legislator who more than anyone sacrificed her own political future and that of her House colleagues, to pass the president's controversial health care law in 2009, have split very publicly.

With Elizabeth Warren's voice and influence growing in the Senate, we are now likely to see a thoroughly more divided Democratic Party, especially on economic issues like income inequality and taxes. On one side, you will have Obama and the "board room liberals," like Sen. Charles Schumer (D-N.Y.), siding with moderate Republicans like new Senate Majority Leader Mitch McConnell (R-Ky.). Across will be Warren and Pelosi and the progressive activists that have pushed so hard to rein in Wall Street excess.